HOW DO YOU TREAT PUBLIC ADJUSTER’S FEES?
What are the
income tax consequences of payments made to the public adjusters?
Public
adjusters are professionals who work for the person who has experienced the
loss, not the insurance company. Most individuals are fully capable of dealing
with the process of settling their insurance claim. But sometimes it is a
question of time. Maybe there are complexities of the claim that a professional
can assist the insured in arriving at an equitable result.
What are the
possible ways to treat the payments to public adjusters? Here are possible
thoughts, many will be eliminated.
1.
Deduction as part of a
casualty loss – no.
2. Deduction
as a miscellaneous itemized deduction – maybe.
3.
Ignore in any calculations –
no.
4.
Offset against insurance
proceeds – most likely.
Do you have
another possibility?
LET’S LOOK CLOSER.
1.
Deduction as part of a
casualty loss – no.
To
understand this choice we have to look at the original event, the fire, the
flood, the tornado, the earthquake.
The extent
of the loss ended with the fire was extinguished, the earth stopped moving, and
the storm subsided. After the loss has stopped the taxpayer is in the recovery
phase. Hiring a public adjuster is part of the recovery process.
2.
Deduction as a miscellaneous
itemized deduction – maybe.
The IRS and
courts look to the source of the claim. In this case the claim is against what
is the taxpayer claiming a deduction or an offset? If the claim is the
insurance collections that the public adjuster secured for the owner, then that
would indicate the source of the claim (see # 4).
In some
cases, there may not be any insurance and the taxpayer hires a public adjuster
to assist in developing the loss deduction for tax purposes. In that instance,
the fee paid would be a miscellaneous itemized deduction for a taxpayer
reporting on a Form 1040. For a business return, it would be an expense,
separate from the loss deduction.
3.
Ignore in any calculations –
no.
Well of
course you should not ignore it. But if you are the taxpayer and you have a
professional tax preparer assist you in the preparation of your return, you
should make sure that you bring the fees paid to the public adjuster to the tax
preparer’s attention.
4.
Offset against insurance
proceeds – most likely.
Going back
to the source of the claim, here is an example of how to deal with the fees
paid to a public adjuster:
Category
|
Gross Proceeds Secured by Public Adjuster
|
Public Adjuster Fees Paid (10% of Proceeds)
|
Net to be dealt with as proceeds
|
Real Estate
|
$70,000
|
$7,000
|
$63,000
|
Personal Property
|
20,000
|
2,000
|
18,000
|
Additional Living Expenses
|
10,000
|
1,000
|
9,000
|
TOTAL
|
$100,000
|
$10,000
|
$90,000
|
March 2014: New Information
Additional Help for Taxpayers Recovering From a Catastrophic Loss
An
organization with over twenty years experience assisting people who
experience catastrophic event, United Policyholders (UP) offers many
useful programs. If you need additional assistance and have not seen
the UP website, here is a link:
For a general link to the UP website use this link: http://www.uphelp.org/
JOHN
TRAPANI
|
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Certified
Public Accountant
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2975
E. Hillcrest Drive #403
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Thousand
Oaks, CA 91362
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(805)
497-4411 E-mail John@TrapaniCPA.com
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Blog:
www.AccountantForDisasteRrecovery.com
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It All Adds Up For You
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This material was contributed by John
Trapani. A Certified Public Accountant who has assisted taxpayers since 1976,
in analyzing and reporting transactions of the type covered in this material.
Internal Revenue Service Circular 230 Disclosure
This
is a general discussion of tax law. The application of the law to specific
facts may involve aspects that are not identical to the situations presented in
this material. Relying on this material does not qualify as tax advice for
purpose of mounting a defense of a tax position with the taxing authorities
The
analysis of the tax consequences of any event is based on tax laws in effect at
the time of the event.
This
material was completed on the date of the posting
© 2012, John Trapani, CPA,
